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Moving Mobile Banking Toward Acceptance And Profitability

Mobile check deposit is a crucial factor for driving adoption in this evolving channel.

In the past year, mobile banking has become widely available yet it hasn’t really taken off. As a result, many observers wonder what the potential return on investment is with the technology, and whether it can really contribute to the profitability of financial institutions.

The modest uptake of mobile banking is essentially due to the fact that this channel hasn’t really offered customers a compelling value proposition — that is, it hasn’t had a “killer app” that would prompt consumers to switch from their current habits. The situation is similar to that of Internet banking years ago, where adoption was slow until the killer app of online bill payment drove widespread use.

Now, a prime contender for this mobile banking killer app has emerged — mobile check deposit (MCD), which lets customers snap a photo of their checks and send that to their financial institution to make a deposit. For consumers, MCD adds a new, highly convenient function to the mobile banking platform — an expanded value proposition. Vantiv is already seeing a number of new apps that integrate MCD into mobile banking, and all of the top 10 U.S. financial institutions now offer this capability.

Research and consulting firm Celent forecasts that more than 1,000 financial institutions will be offering MCD by the end of 2013.

Financial institutions should be able to leverage this trend to improve profitability in several ways. At first glance, one of those would seem to be fees. A number of financial institutions are charging small convenience fees for MCD. However, not all financial institutions do, and this is likely to create consumer expectations for no-fee MCD service. Indeed, Vantiv’s data indicates that the institutions that do charge are already seeing a relatively lower level of mobile deposits, compared to institutions that aren’t charging. So, while MCD does offer some revenue potential, MCD fees aren’t likely to be a long-term factor in profitability.

A larger and more sustainable impact is likely to come from MCD’s contribution to reduced costs. When consumers make mobile deposits, they aren’t visiting branches and drawing on resources there. Transaction costs for in-branch deposits vary widely, but as a rule, the per-transaction over-the-counter cost for community banks and credit unions is in the $2 to $4 range. MCD could eliminate a significant portion of that. While check volumes are declining, that decline continues to be slow. Financial institutions still need to process a large number of checks — and the savings from MCD could be both substantial and long term.

The actual size of that savings will depend on each specific institution’s situation. However, many institutions do not have a clear understanding of what it actually costs to accept and handle a check in the branch. Developing that understanding will be key to accurately assessing the cost-reduction and profit potential of MCD.

Perhaps most important factor will be MCD’s impact on the user experience and customer “stickiness,” which are central to sustained profitability. The appeal of MCD appears to be broad. For example, one might assume that consumer interest in MCD would be driven by the younger demographic groups — the typical early adopters of technology. However, a Vantiv analysis of the actual enrollment of financial institution customers in MCD programs found that 60% are between the ages of 30 and 60. This is a clear indication of how rapidly MCD is entering the mainstream.

We are rapidly reaching a point where consumers are starting to make choices about financial institutions based on the mobile services they offer. Since 2011, the number of consumers who used “must have online banking” as a criteria in an online bank-comparison tool has risen from 11% to more than 18%, according to a recent report from the online publication The Financial Brand.

At the same time, consumers want more than basic banking functions on those platforms. Vantiv research has found that consumers expect mobile platforms to give them a growing range of functionality that goes well beyond checking balances and transferring funds. They expect to have tools and information to help them manage their financial lives — things like MCD, alerts, personal financial management functions, GPS-based services such as location-specific promotions and, ultimately, mobile payments.

It’s also worth noting that in terms of profitability, high-value consumers who earn more than $100,000 a year are especially interested in mobile payments.

MCD can be a quick and easy way for financial institutions to effectively enter the growing mobile arena. It can demonstrate an institution’s commitment to evolving mobile banking functions and help keep customers loyal as that evolution takes place.

In short, MCD can be an important tool for meeting ever-rising customer expectations and a vital factor for sustained profitability.

As part of her role as VP of Corporate Marketing for Vantiv, Lorena Harris directs the Vantiv Insights research on consumer experience with payments. Working with Mercator, she leads the design and development of all the research-based educational materials provided on Vantiv.com/research.
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